OUR INCOME TAXATION:  THE DARKER SIDE

 

                            by

 

                       Charles Adams

 

 

(This piece was dedicated by Charles Adams to CATS members all

across America.  It is his wish that you will share it widely in

hopes we can once and for all rid America of the scourge of the

income tax and the Internal Revenue Service.  Please cross-post

and share by all means at your disposal.)

 

 

The economics of our income tax has been under assault

recently by some of our best economists and tax men.  The

general conclusion seems to be that this tax acts as a drag

on the economy, slowing economic growth, producing

chronic inflation, discouraging savings and enterprise, and

putting America at some disadvantage in world trade with

those nations, especially the miracle economies, who have

moderate, simpler tax systems -- systems that encourage and

promote capitalism.

 

The darker side I speak of has little to do with trade and

economics -- it has to do with the spiritual values that were

at the core of the founding of America.  The destruction of

these values by our income tax would come as no surprise if,

in our education, we had learned that most great empires

taxed themselves to death, spiritually as well as economically.

The Founders as well as the ancient Greeks and Romans warned

future generations about the tyranny that would befall any nation

that adopted a tax system like we have endured.  Their words

speak from the past, like the ancient prophets from Biblical

times.  Consider Rome's spiritual demise.

 

The Statue of Liberty was a gift from the French to commemorate

the 100 year anniversary of American independence.  She stands at

the entrance to New York's harbor as an inspiration to the nation

and the millions of immigrants who arrived from Europe by ship

before the jet-age, "yearning to breath free."   She was really a

gift from the Romans.  The Goddess of Liberty was on Roman coins,

just like she was on our gold coins and early 50c piece;  she was

honored with a number of temples, and Roman writers proclaimed,

"Liberty is a possession on which no evaluation can be placed,"

and "Freedom is beloved above all things." 1/  Yet the coins and

temples disappeared almost 200 years before Rome's official

demise when the Emperor Diocletian enslaved the Roman people to

ensure tax compliance, and he achieved this end by chaining every

taxpayer to his land, shop, or job.  One leading Roman historian

acknowledged that Diocletian's tax system did indeed save Rome,

but he never asked "whether it was worthwhile to save the Roman

Empire in order to make a vast prison for scores of millions of

men." 2/

 

The Romans did not submit to this tax enslavement without

resistance, so the Roman state resorted to brutal, savage

punishments.  Zisimos, a Greek writer during this period, tells us

that the scourge and rack were used against taxpayers;  and to

make the system work, fathers were compelled to prostitute their

daughters, and even children were sold into slavery. 3/  As one

Roman declared, "Let us flee to some place where we may live as

free men." 4/

 

This viciousness of the Roman state towards its citizen

taxpayers is what we need to focus upon, because it soon infected

the relation of the people with one another.  Salvian, the Bishop

of Marseilles at Rome's fall, describes the evil, the decadence

and cruelty that the tax system had created.  As he said, any

individual with any sense of human decency would seek out another

homeland. 5/  "Rome was like a mother cancer cell that passed

its vicious propensities on to its children." 6/

 

A similar pattern appeared in Imperial Spain a thousand

years later.  Spain, like Rome, taxed itself to death.  To

enforce a similarly abusive, excessive tax system, Spain fell

back on "applying the screw" to reluctant taxpayers. 7/

"Applying the screw" was not a figure of speech, like the

Roman scourge it was an instrument of torture.  Unlike Rome,

Spanish taxpayer resistance was disastrous for the state.  Over

six major tax revolts erupted during the height of Spain's glory

and there is little doubt these revolts drained the strength of

the Crown and permitted Britain, France, and the Netherlands to

take over much of what was the greatest empire of all time.

 

Spanish taxpayers responded with the same brutality meted

out by the tax bureau.  In 1520, taxpayer deputies, summoned by

the Crown, promised their constituents there would be "no new

taxes."  However, the financial goodies promised by the king were

too tempting so they voted for new taxes.  Riots erupted

throughout Spain.  In Segovia, an angry mob seized the local

deputy and as they led him off for execution, his plea to receive

the last sacraments was denied -- there was to be no forgiveness in

this life nor the life to come.  I wonder, what would these angry

taxpayers have done to members of Congress who approved Clinton's

taxes?  Or to George Bush who breached his promise of "no new

taxes?"

 

The response of Spanish taxpayers included evasion and

emigration.  The Spanish operated the most massive system of tax

fraud and evasion ever known, notwithstanding that the Crown

threatened evaders with the death penalty.  All trade from the

New World was engaged in one gigantic smuggling operation.  If

that wasn't enough, people fled from Spain in great numbers.  As

one historian observed, "In place of wondering at the

depopulation of villages and farms, the wonder is that any

of them remain." 8/

 

The use of cruel and savage punishments to enforce taxes has

repeated itself often throughout the course of Western history.

In France a hundred years of violence against taxpayers and even

tax collectors, culminated in the French Revolution in which the

tax man came out on the short end -- indeed, the whole lot of them

were shortened about 10 to 12 inches apiece after the man who ran

the guillotine had finished his work -- no tears were shed when

their heads flopped into the basket.

 

In the 18th Century, Sir Robert Walpole, Britain's first prime

minister, used "vicious punishments" to enforce his tax system.

He was, as one biography described him, "In no way squeamish

about the liberties of the individual," and he used "savage

punishments, and the full authority of the Crown to make the

public conform to his system [of taxes]."  Eventually, riots spread

throughout Britain, as an "expression of a profound and

cumulative hatred of a system oppressive, tyrannical, and corrupt

[with power]." 9/  When Sir William Blackstone wrote his great

treatise (still in print), Commentaries on the Laws of England

(1765), there was no praise for Walpole's tax enforcements, they

were "arbitrary" and "hardly compatible with the temper of a free

nation."10/  That same condemnation would easily apply to our

income tax laws today.  It was less than 25 years after the riots

in Britain over Walpole's tax laws that the British colonists in

North America sensed the same sort of tax policy coming their

way, and they were willing to resort to violence and even treason

against the Crown's taxes.

 

The Founders of America were well aware of the history summarized

above.  The great sage of the Enlightenment, Montesquieu, in his

The Spirit of Laws (1751), inspired the Framers of the

Constitution, and much of its form can be traced to this great

book.  He was a tax-philosopher historian.  If our current tax

makers and we as a people had been schooled in his studies, as

the Framers of our Constitution were schooled, we may not be

having the tax troubles that now infect our whole social order.

He taught emphatically that excessive taxation produces slavery;

noting that men living in a liberty-oriented society will

foolishly submit to excessive taxation.  He added a further

observation, that excessive taxes will require, "extraordinary

means of oppression."  And from that, "the country is ruined." 11/

 

This conclusion of Montesquieu was not a theory, it was

plainly visible to him as a fact in the governments of his

day and of those in history.  With Montesquieu we are not dealing

with logic, we are dealing with what Oliver Wendell Holmes had in

mind when he said, "A page of history is worth a volume of

logic." 12/

 

The leading writer for the American Revolution was Thomas

Paine.  "Without the pen of Paine," said John Adams in poetic

rhyme, "Washington would have wielded his sword in vain."

Washington had Paine's pamphlets distributed to his troops to

read when they were in Winter Quarters during the dark days of

the war.  America was a land of liberty, wrote Paine, because it

was a land of low taxes.  Excessive taxes produced tyranny, he

wrote, caused by the foolish and naive attitude of the people

toward their government by believing that "government is some

wonderful mysterious thing."  And when the people believe that

illusion, "excessive revenues are obtained." 13/

 

What drove men to revolution was simply overtaxing and overblown

governments.  In short, when a government is just, "taxes are

few."  And revolution was necessary and justified to bring about

a government "less expensive and more productive," which would

bring about "peace, civilization and commerce." 14/

 

Let us leave the past and the Founders, and see what shadows of

the past are cast upon us with our income tax.  Montesquieu tells

us excessive taxes produce, "extraordinary means of oppression."

Has that happened to us?

 

First.  Our income tax has evolved from an honor system to a

spy system.

 

In the 1950s it was routine for an IRS agent to begin his audit

by telling the taxpayer, "Ours is an honor system, which is the

only way it will work in a free society."  Supreme Court Justice

Jackson, a former chief counsel for the IRS, said at this time

that instances of self-serving mistakes and outright evasion were

rare -- and that was at a time when the infamous "Information"

returns were nonexistent. 15/  Banks did not report anything

to the IRS about the affairs of their customers.  Nothing that

went through a bank account was photographed and held in storage

for Big Brother to see.  Interest income was not reported;

dividends were not reported;  real estate transactions and income

was not reported;  stock transactions were not reported;  income

from independent workers was not reported.  Only wages were

reported and that was done to enable workers to file for a tax

refund.  U.S. Customs did not demand to know how much money or

travelers checks you were carrying, nor did they punish and

confiscate amounts in your possession which were unreported.  The

tax system was an honor system, and it worked.

 

Why did we evolve from an honor system to a spy system?  The

answer is the same reason why Diocletian had to adopt a

serf-system -- to make taxpayers pay.  People were not complying

with the tax law, pure and simple.  Gibbon in his Decline and Fall

of the Roman Empire, describes this period as "a perpetual

struggle between the powers of oppression and the arts of fraud."

16/  That description, with the addition of "the arts of

avoidance," is not altogether inappropriate for our system, and

the reason why totalitarian surveillance is necessary to make our

income tax work.  Isn't it time we asked -- as was asked about

Diocletian's systems -- is our income tax worth saving when it

won't work without massive espionage and savage punishments to

ensure compliance?  Is this not a sign of a sick tax system and

of a shift from a free society to a totalitarian state as

happened in Rome?

 

The danger that income taxes may produce a massive espionage

system and destroy much of the liberty of the people was a

distinct possibility at the time America adopted its first income

tax.  Even the experts were aware of the risk, but they were

quick to argue it would not be a possibility with the long

traditions of freedom of the American people.  The danger became

apparent because of the income tax system in Prussia, which,

according to one German legislator who opposed the system,

covered the country with "a perfect system of espionage. 17/  In

an income tax audit, a taxpayer who was involved with securities,

would be asked, "How many stocks did you sell this year?  On what

day and at what exchange did you sell them?  What is the price of

each?  What is the name of each company in which you have

securities?"  This was considered oppressive, the "espionage"

that income tax advocates in America in 1914 assured the people,

would never happen here.  They claimed:

 

     The administrative methods employed in Germany ... would

     be impracticable almost anywhere else.  In no other place

     is the bureaucracy so powerful.  Nowhere else are the people

     so meek in the face of officialdom.  In no other country of

     the world would it be possible to enforce so inquisitorial a

     procedure as we have learned to be customary in Prussia.

     18/

 

Of course, the above writer, Professor Edwin Seligman (whose

books did so much to cause the adoption of the 16th Amendment)

was dead wrong -- 100% wrong.  There is nothing of a fiscal nature

you do that is not reported to the tax man.  His power is

unlimited, unrestrained, and is more in keeping with a

totalitarian state than a free society.  If the Prussian tax

system was a perfect system of espionage, ours is a superperfect

system of espionage.

 

An IRS agent, writing under a pseudonym, "Diogenes," contends

that neither "Soviet Russia or Red China can boast of agencies

that beat the IRS on all these counts [espionage] ... The Gestapo?

Not a contender either."

 

Second, we have had to resort to savage, psychopathic punishments

to make the income tax system work.

 

Backing up the espionage is the fear of punishment -- severe,

Long-term prison terms which hang over the heads of all

taxpayers.  Every March and April, prosecutions are published as

front page items, to put terror and to intimidate every taxpayer

as the tax return season is in full force.

 

Thomas Paine wrote that, "An avidity to punish is always dangerous

to liberty." 20/  Some punitive measures are, at times necessary

for tax enforcement, but have we gone too far?  Are we out-of-step

with a free society?  With the rest of Western civilization?

Outside of the former Soviet Union, no nation treats its tax

offenders with such harshness, to the point of being

psychopathic.  Is tax money so important, or are we so sick, as

to have to treat tax offenders on a par with vicious, dangerous

criminals?  Historians now call Walpole's punishment for excise

tax evasion, "savage."  The same would be true today for our

income tax punishments.

 

Our tax makers today are amazed to learn that the great

thinkers of the Enlightenment, William Blackstone (law), Adam

Smith (political economy), and Montesquieu (political philosophy)

all condemned making tax evasion a crime.  Montesquieu said it was

contrary to the spirit of moderate government.  Severe punishments

for tax offenses, said Blackstone, "destroys all proportion of

punishment, and puts murderers upon equal footing with such

as are really guilty of no natural, but merely a positive offence

[not a real crime]." 21/

 

Adam Smith reasoned this way: A tax evader was usually a person

not capable of committing a true crime, and is  --

 

     In every respect an excellent citizen, had not the laws

     of his country made a crime nature never meant to be so.

     22/

 

How savage are our punishments?  Consider what a Kansas City

judge, Deane Whipple, did to Trula Walker and her husband.  For

evading about $1 million in taxes she got 30 years;  he got 25

years.  A Portland, Oregon, high school coach, who decided to do

tax planning rather than coaching, got 25 years, and when the

judge, Robert Maloney, was asked to reconsider this draconian

judgment, he refused to reduce the sentence.  Leona Helmsley

got 4 years for evading less than 1% of her taxes (she paid

over $50 million for the year in dispute).  Contrast these

samples of American judicial psychopathy with European courts.

Sophia Loren's punishment for tax evasion on a grand scale was 30

days confinement in a private home -- real tough, she couldn't go

to her hair dresser who now had to come to her home.  And then

there was the West German Economic Minister, Otto Lamsdorff, who

for evading the same amount as Trula Walker, received a modest

fine.  He was immediately thereafter elected to the national

legislature.  He called the trial an "inconvenience." 23/  These

two European examples are fairly typical of how European courts

punish tax offenders, much in keeping with the spirit of moderate

government, as Montesquieu advised.

 

In Canada, which has about as many tax evasion convictions as the

United States (about 2500 per year), a recent study disclosed

that only six taxpayers ever saw a jail and then only on a short-

term basis.  In the United States everybody goes to jail, and not

for short terms.  America has a kind of gulag for disloyalty to

the tax system, not unlike the gulag in the former Soviet Union

for disloyalty to the political system.

 

Third.  Liberty's archenemy -- Arbitrary and direct taxes.

 

"The most pernicious of all taxes are the arbitrary," said David

Hume, the great Scottish philosopher, "They are commonly

converted, by their management, into punishments on industry.  It

is surprising, therefore, to see them have place among any

civilized people." 24/  Alexander Hamilton, a leading proponent

of the Constitution who favored broad taxing powers, had no use

for arbitrary taxes.  "Whatever liberty we may boast of in

theory, it cannot exist in fact while [arbitrary] assessments

continue." 25/

 

There never was a tax law more arbitrary than our current income

taxes.  In the 1950's, Congress decided that the top bracket

should be 91%;  Kennedy thought 70%;  Reagan 28%;  and Clinton wants

to jack it back up to around 40%.  And as for exemptions, tax

credits, and other tax goodies, they vary from legislature to

legislature -- arbitrariness to the utmost extreme making a field

day for tax lobbyists and a joy to the tax makers on the Ways and

Means Committee.

 

The Framers of the Constitution thought they had provided against

any arbitrariness in taxation by commanding that all tax laws be

UNIFORM, i.e. the same for all.  But the uniformity command

disappeared in the 20th century when the justices who upheld this

condition, all died and were replaced with justices willing to

make that provision an "empty shell" as legal scholars have

described the present state of affairs. 26/  The Congress can now

adopt abusive, discriminatory, arbitrary taxation to the extreme,

thus fulfilling James Madison's fear expressed in The Federalist,

No. 10:

 

     Yet there is, perhaps, no legislative act in which

     greater opportunity and temptation are given to a

     predominant party to trample on the rules of justice.  Every

     shilling with which they overburden the inferior number is a

     shilling saved to their own pockets.

 

Madison concluded by arguing that "The Majority ... must be

rendered unable to concert and carry into effect schemes of

oppression."  The Constitutional command of uniformity for all

taxation was one means to achieve that end, but once the Court

made that command an "empty shell," the U.S. Congress has with

impunity "trampled on the rules of justice," with tax rates

deliberately made unequal, and with exemptions and other tax

favors for the best lobbyists, just as Madison had predicted.

 

Besides the disastrous consequences of both arbitrary taxation

and excessive taxation, Montesquieu focused on another archenemy

of liberty -- direct taxation, which he described as being "natural

to slavery," unlike indirect taxes, or a "duty on merchandise is

more natural to liberty, because it is not so direct a relation

to the person." 27/

 

This observation was over two thousand years old.  The Greeks

discovered it by observing the many empires of the world -- all

were despotic, tyrannies.  And all had direct forms of taxation,

like wealth taxes, income or production taxes, poll taxes, and

the like.  The Greeks concluded, tyranny was the consequence of

direct taxation.  Except in times of war, direct taxes must be

avoided if liberty is to be preserved.

 

Cicero, the great Roman lawyer, also condemned direct taxes as a

danger to Roman liberty.  He said:

 

     Every effort must be made to prevent a repetition of

     this [direct taxes];  and all possible precaution must be

     taken to ensure that such a step will never be needed.  But

     if any government should find it necessary to levy a direct

     tax, the utmost care has to be devoted to making it clear to

     the entire population that this simply has to be done

     because no alternative exists short of complete national

     collapse. 28/

 

Why, you may ask, is direct taxation so bad?  Why did the Greeks

and Romans have so much contempt and hatred for what we have

lived under most of this century?  They came to this conclusion

from history.  They saw the tax system of the Pharaohs of Egypt

and the enormous oppressive bureaucracy the Pharaohs maintained

to collect taxes;  they may also have noticed that no word even

exists in the Egyptian languages that means freedom or liberty.

Freedom and liberty just didn't exist where direct taxes were in

operation.  In the past century, with the income tax, the people

of America have seen their liberties slip away, one by one, year

in and year out.  Even in the so-called pro-taxpayer Reagan

years, the power of the IRS over everyone's life increased

dramatically.  Over 150 penalties were put in operation to

increase the tax, almost double the tax, for the slightest

slip-up by the taxpayer.  Reagan and the Congress of his era may

have reduced rates, but they increased IRS muscle in the process.

 

Their process of ever increasing powers, creating a muscle-bound

bureaucracy, reminiscent of so many ugly tax bureaucracies of the

past, is what the Greeks and the Founders were warning us about.

 

This concept did not go unnoticed by the Framers nor by

Montesquieu.  At the Constitutional convention, Madison echoed

the Greeks on the matter of direct taxes.  He said, almost as a

matter of fact, they would only be introduced during an

"extraordinary emergency." 29/  It was inconceivable they would

ever be a permanent, peacetime measure, for the reasons both

Montesquieu and the ancient Greeks propounded.

 

What was inconceivable then, has not been inconceivable in the

20th century.  We have made direct taxation the order of the day

and we have re-confirmed, for future generations, that the Greeks

were right.  Direct taxes do produce tyranny.  When the Readers'

Digest wrote a series on the abuses of power by the IRS, they

entitled the series, "The Tyranny of the IRS."  Unlike wise men,

we have had to learn from history the hard way -- by reliving what

others warned us about.

 

One of the high points in Thomas Paine's life was his arrest and

charge of seditious libel while in Britain.  The charge came about

because of his book, The Age of Reason, in which he condemned

kingships, especially Britain.  To his defense came one of the

world's greatest lawyers, Thomas Erskine.  He paid dearly for the

defense of Paine, having been dismissed by the King from his post

as Attorney-General.  The following is taken from his speech in

1792, which seems to explain how our liberties have been lost to

enforce our income tax system:

 

     ... arbitrary power has seldom or never been introduced

     into any country at once.  It must be introduced by slow

     degrees, and as it were step-by-step, lest the people see

     its approach.  The barriers and fences of the people's

     liberty must be plucked up one-by-one, and some plausible

     pretenses must be found for removing or hoodwinking, one

     after another, those sentries who are posted by the

     constitution of a free country, for warning the people

     of their danger. 30/

 

The evolution of our direct income tax system from an honor to a

spy system has taken almost 50 years, in slow degrees, "as it

were step-by-step," under plausible pretenses used to hoodwink

the sentries "posted by the constitution," i.e., the Supreme

Court decisions, like Boyd v. United States, a tax case which

declared unconstitutional a statute that gave the revenue

bureaucracy the power to order a taxpayer to bring in his books

and records for examination.  Said the Court:

 

     And any compulsory discovery by extorting a party's

     oath, or compelling the production of his private books and

     papers, to convict him of a crime or to forfeit his

     property, is contrary to the principles of a free

     government.  It is abhorrent to the instincts of an

     Englishman;  it is abhorrent to the instincts of an

     American.  It may suit the purposes of despotic power;

     but it cannot abide the pure atmosphere of political liberty

     or personal freedom. 31/

 

That was in 1885.  The case has been cited over 3000 times.

Finally, in 1983 it took a woman justice on the Supreme Court to

acknowledge that the Court had "sounded the death knell for

Boyd." 32/  Year in and year out, with each new piece of tax

legislation, the IRS has been given increasing powers to spy,

punish and intimidate taxpayers on a level associated with a

totalitarian state.  The Supreme Court, like Pontius Pilate, had

the duty to prevent this abuse of power -- but like Pilate, the

justices have washed their hands before the multitude. 33/

 

Finally, not long ago on the MacNeil-Lehrer news hour on PBS, an

essayist was finishing what would otherwise have been a fine

talk, except he concluded his remarks with an assertion I have

heard frequently since early grammar school days -- "America is the

freest country in the world."  That may have been true in times

past, but it is not true today, not by a long shot.  There are

many countries in the free world that grant their citizens far

greater freedoms than we enjoy in America.  Not only are we

slipping to some degree in world commerce, we have slipped a

great deal more in matters of liberty and freedom.  And the

reason?  Our income tax and our government's zeal to enforce

it at all costs, including our liberty if it gets in the way.  As

a free nation, we are a third-string operation, thanks to our tax

system.

 

What needs to be done to restore our leadership and ranking among

free nations?  The answer is easier than you may think.  We need

to go back to our roots, to the ideals and passion for liberty

that was the driving force behind the formation of this nation.

The Founders had no use for direct taxation as a permanent

revenue device.  They believed, as did the ancient Greeks and

Romans, that it was a great danger to liberty.  They were right

and we are living proof of how right they were.

 

Without an income tax there would be no need to photograph

everything going through your bank account;  no need for your bank

to notify the government about your cash account or other

financial dealings;  no need for your interest, dividends, stock

sales, real estate transactions, and baby sitters to be reported

to Big Brother.  No need for Customs to search travelers to

make sure they were not carrying too much money with them;  no

need for judicial terrorism, savage punishments, and psychopathic

judges.  The laundry list of government intrusions would be

minimal.  In one fell swoop, the totalitarian muscle behind our

tax system would disappear.

 

Adam Smith in The Wealth of Nations, sets forth four signs

of a bad tax system:

 

First, a large bureaucracy for administration.  Did you know that

the IRS, with over 150,000 employees, is the largest tax

bureaucracy since ancient Rome?  Its tentacles reach out and have

hold on over 200 million people.

 

Second, a system that puts taxpayers through "odious

examinations ... and exposes them to much unnecessary trouble,

vexation, and oppression."

 

Third, a system that encourages evasion.

 

Fourth, a system that obstructs the industry of the people, and

discourages enterprise which might otherwise give "employment to

great multitudes," i.e. jobs;  that obligates people to excessive

payments and thereby takes away the funds that would promote

commerce, industry and employment. 34/

 

A national sales tax, if it replaced the income tax, would rid

the nation of the evils our income tax has produced and the

liberty it has trampled upon.  Economic studies indicate it will

produce as much revenue as the income tax.  It will also comply

with the Constitutional command of uniformity.  Our descendants,

in centuries to come, would look back upon us, as we look back

upon our Founders, with admiration for delivering future

generations from a tax that was oppressive, tyrannical, and

corrupt.

 

 

 

                            Endnotes

 

1.  Justinian Digest, L.xvii;  Naphtali Lewis and Meyer Reinhold,

    ed., Roman Civilization, Sourcebook II, The Empire (New York,

    1966) p. 539

 

2.  M. Rostovtzeff, The Social and Economic History of the Roman

    Empire I (Oxford, 1971) p. 531-32.

 

3.  Salvian, On the Government of God, ed. Eva M. Sanford (New

    York, 1930) pp. 141-49

 

4.  Rostovtzeff, Roman Empire, I. p. 398

 

5.  Ferdinand Lot, The End of the Ancient World and the Beginning

    of the Middle Ages (New York, 1961) p. 175

 

6.  Charles Adams, For Good and Evil:  The Impact of Taxes on the

    Course of Civilization (Lanham, MD, 1993) ch. 11

 

7.  ibid., p. 187

 

8.  Martin Hume, Spain, Its Greatness and Decay (1479-1788)

    (Cambridge, 1898) p. 221